For a country that boasts of over 1 billion subscribers and one of the fastest growing telecom markets in the world, India’s rural telecom narrative has been rather disappointing. While the rural population accounts for about 70 per cent of the total population, the segment’s share in the country’s total telecom user base stood at around 42 per cent as of end-March 2017. This translated into a teledensity of 56.91 per cent, as compared to the urban penetration of 171.8 per cent. While teledensity in the Delhi circle stood at 257.76 per cent as of March 2017, there are 50,000 villages in the country that have still not been connected with the mobile network. The state of internet adoption in the hinterland is even worse. As of end-December 2016, internet penetration in rural areas stood at 13 per cent.

The low penetration can be attributed to the lack of adequate telecom infrastructure in rural areas, high capex and lower ARPUs, which have raised doubts among operators. That said, the saturating urban voice market has diverted their attention to rural users. As a result, operators including Vodafone India and Idea Cellular now have a high rural subscriber base. In fact, the net additions of rural users per month now far exceed additions in the urban segment. However, this growth has not yet made a significant mark on rural telecom statistics as compared to the urban market.

In recent years, operators’ stretched balance sheets have also adversely impacted their capacity to expand to rural and remote areas. High spectrum payouts, launch of next-generation services in urban areas and various other cost centres such as energy management have left operators with negligible funds to dedicate to low-ARPU rural markets.

The entry of Reliance Jio Infocomm Limited (RJIL) was expected to change the rural landscape of the country and thus give a major boost to the Digital India initiative, but its focus has largely been on urban markets. In fact, some industry analysts argue that not only has RJIL widened the urban-rural gap by increasing urban teledensity, it has also reduced the amount of money being added to the Universal Service Obligation [USO] Fund. Most of the telecom initiatives in rural areas have been taken by the government through the support of the USO Fund. In the past few quarters, the industry revenues have taken a severe hit due to competition from RJIL and thus the industry’s contribution to the USO Fund decreased during 2016-17 over the previous years. While this does not impact the fund’s immediate capacity to support projects as a substantial amount in the USO Fund is currently underutilised, the government would need to build a bigger reservoir of funds for future network roll-out in rural areas to fulfil its Digital India vision.

The government’s Digital India initiative is likely to be a key catalyst in the growth of rural teledensity. It aims to provide internet access to rural users by promoting digital literacy, building a robust infrastructure, delivering innovative content and improving e-governance. However, its sluggish pace of implementation has been a major challenge. BharatNet, which is reportedly the government’s most ambitious project aimed at empowering rural India through broadband access, has only recently picked up pace. After multiple delays and cost revisions, the government has finally rolled out fibre infrastructure in about 90,000 villages as of May 2017, but only 20,000-odd villages have been lit so far.

As for the operators, given the saturated urban voice markets and hypercompetition, they would have to include the rural segment in their growth strategies. Rural users are exhibiting a huge appetite for data services, provided these are available at affordable prices. With declining smartphone costs and cheaper or virtually free data services being available in the market, rural users seem to be ready for the broadband leap.

Exploring new models to enhance connectivity

A market that has largely remained underserved by private operators and service providers is now attracting significant attention. Operators are exploring new business models to get the vast rural population online. For instance, Facebook has partnered with Bharti Airtel to roll out around 20,000 Wi-Fi hotspots across the country under its Express Wi-Fi project. The project aims to offer internet facility through public hotspots to users in rural area. Users can access these hotspots made available through partner telecom operators by buying daily, weekly or monthly data packs. Meanwhile, Bharat Sanchar Nigam Limited (BSNL) has signed an agreement with Facebook to provide backhaul connectivity in rural areas, which in turn will help promote internet connectivity. The backhaul connectivity will be provided at a preferential rate to Facebook.

Operators are also exploring active infrastructure sharing to enhance connectivity in rural areas at optimised costs. The entry of mobile virtual network operators is likely to benefit rural users. They are expected to launch new bundled services at affordable prices, specifically designed for the rural markets. Meanwhile, BSNL has launched voice and messaging services over satellite with a view to improve telecom connectivity in remote areas. The service will be provided to only government agencies such as the defence forces, public sector units and disaster management agencies in the first phase, but will soon be available for common users too. In fact, commercial satellites can be used for high speed broadband connectivity in remote and rural parts of India.

Broadband as a game changer

Despite its low penetration, the benefits of broadband are far greater in rural areas than in urban areas. This is because most of the applications and services designed for rural users can only be provided using broadband. For instance, broadband penetration is essential to drive the uptake of healthcare, education and e-governance services amongst rural users. Moreover, an increase in broadband penetration in rural areas will lead to an increase in income levels, thereby driving GDP growth.

For broadband to take off in rural areas, it is essential to create relevant local and regional content to attract the masses. According to Nokia’s annual Mobile Broadband Index study, the significance of regional and vernacular content is expected to increase as 3G and 4G networks expand in rural areas. As per Vuclip’s survey, around 78 per cent of Indian mobile users prefer watching video content in their native languages. Hindi videos account for over 40 per cent of viewership traffic in India, followed by Tamil at 8 per cent, Telugu at 6 per cent, and Bengali and Marathi at 4 per cent each. A recent study by Google and KPMG has also showcased that regional languages are playing an important role in defining engagement on the digital platform. As per the report, the number of internet users in vernacular languages grew from 42 million in 2011 to 234 million in 2016. The report also states that users who access content in Hindi are expected to outnumber those who access content in English by 2021. Therefore, there is also a need for handsets that can support content in multiple languages.

Conclusion

Given its sheer size, the rural segment is a key growth area for the Indian telecom industry. In order to leverage the rural markets, educating rural consumers and introducing relevant services for them will be as important in encouraging internet adoption as low access charges and device costs. To this end, new business and service delivery models will have to be explored by operators, content providers and handset manufacturers to ensure that rural India does not remain untouched by the data revolution and its accompanying benefits. Given the power of mobile broadband and the difference it can make to the lives of rural poor, there exists a huge untapped opportunity for all stakeholders in the telecom value chain.